The ACIT, Circle-1, RAJKOT-GUJARAT V. Atul Auto Ltd.,

ITA 295/RJT/2011

• Counselvise Citation: 29524914 RSA 2011
• Duration Of Justice: 1 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 12-06-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 29-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAJIV RANADE
• Assessee Lawyers: PM MAHARISHI
• Keywords: Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL: RAJKOT BENCH: RAJKOT BEFORE SHRI T K SHARMA, JM AND SHRI D K SRIVASTAVA, AM ITA NO. 295 /RJ T/2011 ASSESSMENT YEAR : 200 8 - 09 ACIT, CIRCLE - 1, RAJKOT V. M/S ATUL AUTO LIMITED, PLOT NO.1 TO 4, SURVEY NO.86, NR. MICROWAVE TOWERS, NH 8B, SHAPAR VERAVAL, TAL: KOTDA SANAGANI, RAJKOT PAN : AACCA 3018 M DATE OF HEARING : 12.06 .2013 DATE OF PRONOUNCEMENT : 21 .0 6 .2013 REVENUE BY : SHRI RAJIV RANADE, DR ASSESSEE BY : SHRI P M MAHARISHI, CA ORDER D. K. SRIVASTAVA : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST T HE ORDER PASSED BY THE CIT(A) - I , RAJKOT ON 04 . 03 .20 11 , ON THE FOLLOWING GROUNDS: - 1) THE LEARNED CIT(A) - I, RAJKOT, HAS ERRED IN LAW AND ON FA CTS IN DELETING ADDITION OF RS.89,93,873/ - MADE ON ACCOUNT OF DISALLOWANCE OF REVENUE EXPENSES. 2) ON LEGAL AND FACTUAL STATUS OF THE CASE, THE LEARNED CIT(A), OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 3) IT IS, THEREFORE, PRAYED THAT THE FINDING GIVEN IN THE ORDER OF THE LD. CIT(A) MAY BE DISMISSED/DELETED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 2. THE REVENUE HAS ALSO FILED STATEMENT OF FACTS TOGETHER WITH APPEAL MEMO WHICH READS AS UNDER: - REGARDING ADDITION OF RS.89,93,873 / - ON ACCOUNT OF DISALLOWANCE OF REVENUE EXP: DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT THE ASSESSEE HAD CLAIMED RS.39,40, 016/ - AS PRODUCT DEVELOPMENT EXPENSES U/S.35(1)(I) OF THE IT ACT. THE AO DISALLOWED THE SAME THE EXPENDITURE WAS 2 ITA 295 /RJT/201 1 GENERAL IN NATURE PERTAINING TO ADMINISTRATIVE OFFICE AT PUNE, SUCH AS, OFFICE BUILDING REPAIRING, COMPUTER REPAIRING, STAFF WELFARE, VEHICLE REPAIRING, ENTERTAINMENT EXPENSES, ADVERTISEMENT, OFFICE STAFF SALARY, ETC. FOR PUNE OFFICE. THUS, ON BARE PERUSA L OF THE TYPE & NATURE OF ALL THESE EXPENSES, NO WISE MAN WOULD JUSTIFY THAT SUCH EXPENSES HOLDS THE CHARACTERISTIC OF RESEARCH OR DEVELOPMENT AND THERE IS ANY ELEMENT OF ELIGIBILITY OR ALLOWABILITY AS EXPENSES PERTAINING TO SCIENTIFIC RESEARCH OR DEVELOPM ENT. FOR THE YEAR UNDER APPEAL, I.E. AY 2008 - 09, THE LD CIT(A) DELETED THE ADDITION RELYING UPON HIS OWN ORDER PASSED IN THE APPELLANTS OWN CASE FOR THE AY 2007 - 08. IT MAY BE MENTIONED THAT IN THE APPELLANT ORDER FOR THE AY 2007 - 08, ON PAGE NO.10 OF T HE APPEAL ORDER, THE LD. CIT(A) HAS STATED THAT THESE EXPENSES ARE NOT CAPITAL IN NATURE AND THE AO HAS RIGHTLY STATED THAT THESE EXPENSES ARE IN THE NATURE OF SETTING UP AND RUNNING OF ITS REGULAR OFFICE AT PUNE.. THUS, THE LD CIT(A) GROSSLY MISPLACED HIMSELF IN DELETING THE ADDITION AFTER HAVING AGREED WITH THE FINDING OF THE AO THAT THE EXPENSES WERE IN THE NATURE OF SETTING UP REGULAR OFFICE AT PUNE. THE LD CIT(A) FAILED IN APPRECIATING THE FACT THAT THE EXPENSES FOR SETTING UP REGULAR OFFICE ARE BOU ND TO BE BEARING OF CAPITAL IN NATURE, AND THEREFORE, IS IN CONTRAVENTION OF CLAIMING DEDUCTION U/S 35(1)(I) OF THE IT ACT. FURTHER, THE LD. CIT(A) ERRED IN GIVING THE FINDING THAT THE EXPENSES WERE ALSO OTHERWISE ALLOWABLE U/S 37(1) OF THE ACT, BECAUSE, I T WAS UNDISPUTEDLY AGREED BY THE LD.CIT(A) THAT THE EXPENSES WERE FOR SETTING UP OF OFFICE AT PUNE, THUS, THE CHARACTERISTIC OF THE EXPENSES ITSELF ESTABLISHES THAT IT HOLDS THE NATURE OF CAPITAL EXPENDITURE, WHICH HAS ALSO BEEN DISCUSSED AT LENGTH BY THE AO IN PARA NO.4.1 OF ASSESSMENT ORDER FOR THE AY 2007 - 08. THUS, DECISION OF THE LD. CIT(A) FOR THE AY 2007 - 08 WAS NOT ACCEPTED AND SECOND APPEAL WAS FILED BEFORE THE ITAT. AS THE LD. CIT(A) HAS DELETED THE ADDITION FOR THE AY 2008 - 09 RELYING UPON HIS OWN ORDER FOR THE AY 2007 - 08 AND AS THE DECISION OF THE LD.CIT(A) FOR THE AY 2007 - 08 HAS BEEN CHALLENGED AT HIGHER APPELLATE STAGE, SECOND 3 ITA 295 /RJT/201 1 APPEAL AGAINST THE ORDER OF THE LD. CIT(A) FOR THE AY 2008 - 09, IS RECOMMENDED, TO THE KEEP ALIVE THE ISSUE OF THE 2007 - 0 8. IN VIEW OF THE ABOVE FACTS THE DECISION OF THE LD.CIT(A) IS NOT ACCEPTABLE AND THE ACTION OF THE AO IS REQUIRED TO UPHELD. 3. THE LD CIT(A) HAS ADDRESSED THE ISSUE IN PARAGRAPH 5 OF HIS APP ELLATE ORDER P ERUSAL OF WHICH SHOWS THAT HE HAS FOLLOWED HIS ORDER FOR ASSESSMENT YEAR 2007 - 08 WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. 4. AT THE TIME OF HEARING , IT WAS SUBMITTED THAT THE ORDER PASSED BY THE LD . CIT(A) FOR ASSESSMENT YEAR 2007 - 08 IN THIS BEHALF HAS SINCE BEEN CON SIDERED BY THIS TRIBUNA L, VIDE ITS ORDER DATED 28 .09.2012 IN ITA NO.921/RJT/2010 AND THEREFORE THE ISSUE STANDS COVERED BY THE AFORESAID ORDER OF THIS TRIBUNAL . 5. WE HAVE HEARD BOTH THE PARTIES. IT IS ADMITTED BY BOTH THE PARTIES THAT THE ISSUE UNDER APPEAL IS COVERED BY THE ORDER PASSED BY THIS TRIBUNAL ON 28 .09.2012 IN DEPARTMENTS APPEAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2007 - 08, IN WHICH THE TRIBUNAL HAS HELD AS UNDER: - 8. WE HAVE HEARD BOTH THE PARTIES. SECTION 35 DEALS WITH EXPENDITURE ON SCIENTIFIC RESEARCH. ACCORDING TO SEC.35(1)(I), ANY EXPENDITURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS OF AN ASSESSEE IS ELIGIBLE FOR DEDUCTION. ACCORDING TO SECTION 35(1)(IV), ANY EXPENDI TURE OF CAPITAL NATURE ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE IS ALSO ELIGIBLE FOR DEDUCTION SUBJECT TO THE PROVISIONS OF SUB - SECTION (2) OF SECTION 35. SECTION 35 CAN BE PRESSED INTO SERVICE ONLY WHEN IT IS ESTABLISHED T HAT THE EXPENDITURE CLAIMED AS DEDUCTION HAS BEEN INCURRED ON SCIENTIFIC RESEARCH. IN THE CASE BEFORE US, THE DEPARTMENT HAS TAKEN THE VIEW THAT PUNE OFFICE OF THE ASSESSEE IS ONLY AN ADMINISTRATIVE UNIT. ACCORDING TO THE REVENUE, THE NATURE OF EXPENDITURE INCURRED IN RESPECT OF PUNE OFFICE IS SUCH THAT IT COULD NOT BE SAID TO BE EXPENDITURE ON SCIENTIFIC RESEARCH. THE LD. CIT(A) HAS HOWEVER ACCEPTED THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 35 WITHOUT 4 ITA 295 /RJT/201 1 PROPER SCRUTINY AND EXAMINATION TO FIND OUT AS TO WHE THER PUNE OFFICE OF THE ASSESSEE WAS AN OFFICE ENGAGED IN SCIENTIFIC RESEARCH OR AS TO WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE FOR PUNE OFFICE COULD BE SAID TO BE EXPENDITURE LAID OUT OR EXPENDED ON SCIENTIFIC RESEARCH RELATED TO THE BUSINESS OF T HE ASSESSEE. IN THIS VIEW OF THE MATTER, THE ORDER OF THE CIT(A) CANNOT BE SUSTAINED. SIMILARLY, THE LD CIT(A) HAS ALSO COME TO A CONCLUSION THAT THE IMPUGNED EXPENDITURE WAS ELIGIBLE FOR DEDUCTION U/S.37 OF THE INCOME - TAX ACT WITHOUT RECORDING ANY FINDING AS TO WHETHER THE IMPUGNED EXPENSES WERE IN REVENUE FIELD OR CAPITAL FIELD. SECTION 37 ALLOWS DEDUCTION OF THOSE EXPENSES ONLY WHICH ARE NOT IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL NATURE AND WHICH ARE OTHERWISE NOT IN THE NATURE OF EXPENDITURE D ESCRIBED IN SECTIONS 30 TO 36. I N THE ABSENCE OF PROPER FINDING WITH REGARD TO THE SATISFACTION OF THE CONDITIONS LAID DOWN IN SECTION 37 OF THE INCOME - TAX ACT, THE ORDER OF THE CIT(A) REGARDING ALLOWABILITY OF IMPUGNED EXPENDITURE AS DEDUCTION U/S.37 CANN OT BE SUSTAINED. 9. IN VIEW OF THE FOREGOING, THE ORDER OF THE CIT(A) DESERVES TO BE VACATED AND IS ACCORDINGLY VACATED. THE MATTER IS RESTORED TO HIS FILE FOR A FRESH DECISION IN CONFORMITY WITH THE PROVISIONS OF SECTION 35 TO 37 OF THE INCOME - TAX ACT A FTER GIVING REASONABLE OPPORTUNITY OF HEARING TO BOTH THE PARTIES. GROUND NOS.1 AND 2 TAKEN B Y THE DEPARTMENT ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. FOLLOWING THE AFORESAID ORDER, THE ISSUE UNDER APPEAL IS RESTORED TO THE FILE OF THE LD CIT( A). HE IS DIRECTED TO DISPOSE OF THE MATTER UNDER APPEAL IN ACCORDANCE WITH OUR AFORESAID DIRECTIONS. APPEAL FILED BY THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 21 . 06 . 201 3 SD/ - SD/ - (T. K. SHARMA) ( D. K. SRIVASTAVA) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT: 21 .0 6 .2013 B T 5 ITA 295 /RJT/201 1 COPY OF ORDER FORWARDED TO: - 1 . APPELLANT ACIT, CIRCLE - 1, RAJKOT 2 . RESPONDENT - M/S ATUL AUTO LIMITED, PLOT NO.1 TO 4, SURVEY NO.86, NR. MICROWAVE TOWERS, NH 8B, SHAPAR VERAVAL, TAL: KOTDA SANAGANI, RAJKOT 3 . CONCERNED CIT - I, RAJKOT 4 . CIT (A) - I, RAJKOT 5 . DR, ITAT, RAJKOT 6 . GUARD FILE. BY ORDER TRUE COPY. PRIVATE SE CRETARY, ITAT, RAJKOT